HB2429 SD1

SECTION 1. The legislature finds that certain tax expenditures should be evaluated annually to determine whether they are efficiently fulfilling their intended purpose.

Once enacted, these provisions often remain in place for years with limited reassessment. Periodic review and evaluation of tax expenditures is essential to ensure they remain effective, fair, and aligned with evolving public priorities. Regular evaluation strengthens accountability, supports sound budget decisions, ensures equitable competition, and ultimately maximizes benefits for taxpayers.

The legislature further finds that income tax credits and general excise and use tax exemptions represent a form of public spending, even though they appear as reduced revenue rather than direct expenditures. Without systematic evaluation, policymakers and the public may lack clear insight, or even hard data, that can show how public resources are being used and whether anticipated outcomes are being achieved.

Especially in this uncertain economic climate, there is constant pressure to allocate limited resources among competing needs, such as education, health care, infrastructure, and public safety. Tax expenditures that were justified under past economic or social conditions may no longer reflect current priorities. Reviewing these provisions allows lawmakers to determine whether funds tied up in tax incentives could be better directed elsewhere or whether successful programs merit continued or expanded support. Periodic evaluation helps to align tax incentives with current budget priorities.

The legislature believes that effective tax policy should be guided by data, rather than assumptions. Periodic reviews allow for the measurement of outcomes, such as job creation, economic growth, investment levels, or targeted social benefits, relative to the cost of the incentive. When returns are clearly defined and measured, policymakers can distinguish between programs that deliver strong value and those that fall short.

The legislature recognizes that regular review can determine if initial objectives have been achieved. Some tax expenditures are enacted with specific goals, such as encouraging renewable energy development, revitalizing distressed communities, or supporting research and development. Over time, circumstances may change or goals may be met. Periodic review can provide the data that can point to whether a credit or exemption should be continued, modified, phased out, or replaced with a more effective approach. A tax expenditure that made sense decades ago may no longer be relevant or efficient today. Periodic evaluation makes sense to ensure that tax policy adapts to changing realities and that necessary adjustments are made to maintain effectiveness and fairness.

Most importantly, regular review provides better data for long-term oversight. Collecting and analyzing consistent information on tax expenditures improves legislative oversight and policy design. High-quality data enables evidence-based decision-making, reduces reliance on anecdotal claims, and strengthens the overall integrity of the tax system.

The legislature also recognizes that one possible benefit of regular review is ensuring equitable competition among key industry sectors. Long-standing tax expenditures can unintentionally favor certain industries or firms, creating market distortions and competitive imbalances. Periodic review helps determine whether incentives continue to serve a legitimate public purpose or whether they provide unfair advantages that hinder innovation and competition. A level playing field encourages efficiency and economic resilience across sectors.

Additionally, from the taxpayer's perspective, periodic evaluation helps identify tangible benefits. Taxpayers deserve assurance that foregone revenue translates into public value, such as economic opportunity, improved services, or long-term fiscal stability.

The legislature notes that the periodic review and evaluation of tax expenditures is not merely a best practice, but a necessity for responsible fiscal management. By promoting accountability, aligning incentives with budget priorities, measuring returns, ensuring fair competition, and adapting to change, government can ensure that tax policies serve their intended purpose and deliver meaningful value to taxpayers. Regular evaluation strengthens public trust and helps build a more effective, equitable, and sustainable tax system. Periodic evaluations can clarify whether tax incentives truly benefit the broader public or primarily serve narrow interests.

Accordingly, the purpose of this Act is to facilitate tax reviews and the State's evaluation of tax policies by requiring certain taxpayers to make disclosures in tax returns for their income tax credits or general excise and use tax exemptions.

SECTION 2. Chapter 201, Hawaii Revised Statutes, is amended by adding a new section to part I to be appropriately designated and to read as follows:

"§201- Evaluation of tax expenditures. (a) The department, in collaboration with the department of taxation, shall use the information reported in the statements filed pursuant to sections 235- , 237- , and 238- to study the effectiveness of the tax expenditures and to prepare summary descriptive statistics. The department shall submit a report on the information required under this section to the legislature by September 1 of each year.

(b) The department, in collaboration with the department of taxation, shall develop the appropriate schedules and tax return forms to collect adequate information for the evaluation of tax expenditures to be filed with the department of taxation pursuant to sections 235- , 237- , and 238- .

(c) The department of taxation shall share the tax expenditure disclosure forms filed pursuant to sections 235- , 237- , and 238- with the department upon request.

(d) Notwithstanding any other law to the contrary, as a condition to claiming a tax credit under chapter 235 or tax exemption under chapter 237 or 238, except a tax credit claimed under section 235-15 or under part III of chapter 235, the department of taxation may require taxpayers to authorize the disclosure of additional tax expenditure information requested by the department for the purpose of evaluating the effectiveness of tax expenditures to be filed with the department of taxation pursuant to sections 235- , 237- , and 238- ; provided that the department of taxation shall not require the disclosure of any tax records or information prohibited from disclosure under federal law."

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Statement as condition to claiming income tax

credits. (a) As a condition to claiming an income tax credit under this chapter, a taxpayer shall file with the department of taxation a form prescribed by the director of taxation which shall include but not be limited to the following information:

(1) The taxpayer's name;

(2) The name of the tax credit being claimed;

(3) The amount of tax credit being claimed for the taxable year;

(4) The total cost of the tax credit to the State for the taxable year;

(5) The type of claimant;

(6) The location of use of the tax credit;

(7) The annual revenue impact of the tax credit;

(8) The number of jobs created by the tax credit;

(9) The amount of any additional capital investments created by the use of the tax credit; and

(10) Any additional information regarding the tax credit requested by the director of taxation.

(b) The form shall be filed on or before the date the credit is claimed on the taxpayer's income tax return. Failure to timely file the form shall constitute a waiver of the right to claim the credit.

(c) Notwithstanding any other law to the contrary, the form filed by the taxpayer shall be available for public inspection and dissemination, subject to chapter 92F.

(d) This section shall not apply to a credit claimed under section 235-15 or under part III of this chapter."

SECTION 4. Chapter 237, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§237- Statement as condition to claiming exemption. (a) As a condition to claiming a tax exemption under this chapter, a taxpayer shall file with the department of taxation a form prescribed by the director of taxation which shall include but not be limited to the following information:

(1) The taxpayer's name;

(2) The taxpayer's general excise tax license number;

(3) The name of the tax exemption being claimed;

(4) The amount of the tax exemption claimed for the taxable year;

(5) The total cost of the tax exemption to the State for the taxable year; and

(6) Any additional information regarding the tax exemption requested by the director of taxation.

(b) The form shall be filed on or before the twentieth day of the fourth month following the close of the taxable year. Failure to timely file the form shall constitute a waiver of the right to claim the exemption.

(c) Notwithstanding any other law to the contrary, the form filed by the taxpayer shall be available for public inspection and dissemination, subject to chapter 92F."

SECTION 5. Chapter 238, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§238- Statement as condition to claiming exemption. (a) As a condition to claiming a tax exemption under this chapter, a taxpayer shall file with the department of taxation a form prescribed by the director of taxation which shall include but not be limited to the following information:

(1) The taxpayer's name;

(2) The taxpayer's general excise tax license number;

(3) The name of the tax exemption being claimed;

(4) The amount of the tax exemption claimed for the taxable year;

(5) The total cost of the tax exemption to the State for the taxable year; and

(6) Any additional information regarding the tax exemption requested by the director of taxation.

(c) Notwithstanding any other law to the contrary, the form filed by the taxpayer shall be available for public inspection and dissemination, subject to chapter 92F."

SECTION 6. New statutory material is underscored.

SECTION 7. This Act shall take effect on July 1, 3050, and shall apply to taxable years beginning after December 31, 2026.

HOUSE OF REPRESENTATIVES	H.B. NO.	2429
THIRTY-THIRD LEGISLATURE, 2026		H.D. 2
STATE OF HAWAII		S.D. 1